The brains trust of the Pentagon says it is just months away from producing a jet fuel from algae for the same cost as its fossil-fuel equivalent.

The claim, which comes from the Defence Advanced Research Projects Agency (Darpa) that helped to develop the internet and satellite navigation systems, has taken industry insiders by surprise.

A cheap, low-carbon fuel would not only help the US military, the nation's single largest consumer of energy, to wean itself off its oil addiction, but would also hold the promise of low-carbon driving and flying for all.

Darpa's research projects have already extracted oil from algal ponds at a cost of US$2 ($2.86) a gallon. It is on track to begin large-scale refining of that oil into jet fuel, at a cost of less than US$3 a gallon, says Barbara McQuiston, special assistant for energy at Darpa.

That could turn a promising technology into a market-ready one.

Researchers have cracked the problem of turning pond scum and seaweed into fuel, but finding a cost-effective method of mass production could be a game-changer.

"Everyone is well aware that a lot of things were started in the military," she said.

The work is part of a broader Pentagon effort to reduce the military's thirst for oil, which runs at between 60 and 75 million barrels of oil a year. Much of that is used to keep the US Air Force in flight.

Commercial airlines - such as Continental and Virgin Atlantic - have also been looking at the viability of an algae-based jet fuel, as has the Chinese Government.

"Darpa has achieved the base goal to date," Ms McQuiston said. "Oil from algae is projected at US$2 a gallon, headed towards US$1 a gallon."

A larger-scale refining operation, producing 50 million gallons a year, would come on line next year and she hoped the costs would drop still further, ensuring that the algae-based fuel would be competitive with fossil fuels.

Ms McQuiston said the projects, run by private firms SAIC and General Atomics, expected to yield 1000 gallons of oil per .4ha from the algal farm.

Her projections took several industry insiders by surprise.

"It's a little farther out in time," said Mary Rosenthal, director of the Algal Biomass Association. "I am not saying it is going to happen in the next three months, but it could happen in the next two years."

But the possibilities have set off a scramble to discover the cheapest way of mass-producing an algae-based fuel. Even Exxon - which once notoriously dismissed biofuels as moonshine - invested US$600 million in research last July.

Unlike corn-based ethanol, algal farms do not threaten food supplies. Some strains are being grown on household waste and in brackish water.

Algae draw carbon dioxide from the atmosphere when growing; when the derived fuel is burned, the same CO2 is released, making the fuel theoretically zero-carbon, although processing and transporting it requires some energy.

The industry received a further boost this month when the Environmental Protection Agency declared that algae-based diesel reduced greenhouse gas emissions by more than 50 per cent compared with conventional diesel.

For Darpa, the support for algae is part of a broader mission for the US military to obtain half of its fuel from renewable energy sources by 2016.

The US Air Force wants its entire fleet of jet fighters and transport aircraft to test-fly a 50-50 blend of petroleum-based fuel and other sources, including algae, by next year.

The switch is partly driven by cost, but military commanders are also anxious to create a lighter, more fuel-efficient force less dependent on supply convoys, which are vulnerable to attack.

Ms McQuiston said the agency was also looking at how to make dramatic improvements in the photo-voltaic cells that collect solar energy. Making PV 50 per cent more efficient would enable small devices to be powered by their own solar cells.